re: #148 klys

I am reminded, once again, that the CA real estate market is fucking insane.

That is all.

Not as insane, perhaps, as some of those who seek profit in its rebound. Not home building workers or developers, mind you, but here, read for your self:

Alas, years of zero-interest-rate policy by the Federal Reserve has yet again triggered a chase for yield, and in response the banks are gingerly dipping their toes back into the private mortgage-securitization pool. History won’t repeat itself, right?

Well, not so fast. As with all things related to Wall Street, it’s all about the incentives. And the individuals behind the securitization machine before the crisis made a lot of money. Like buy-your-own-island type of money. And when everything collapsed, they largely kept that money. No indictments, no handcuffs, no jail time and no significant financial penalties for the architects of a crisis built on a foundation of fraud (they were called liar loans for a reason).

Although the government has brought some civil cases, they have been settled on terms that can only be compared to the proverbial slap on the wrist, and we are reminded almost daily that there remain banks that are both too big to fail and too big to jail.

The one silver lining to this very dark cloud is that the banks haven’t yet proved to be too big to nail, as the wronged purchasers and insurers of their toxic bonds have been waging an occasionally successful multiyear legal battle against the banks and, indirectly, actually punishing them financially for their misconduct. It, therefore, shouldn’t be surprising that, as the banks re-enter the securitization market, their biggest concern seemingly isn’t to ensure that they aren’t once again peddling fraudulent products that might bring government scrutiny, but rather to deal with private civil litigation.

So, as reported in the Wall Street Journal, they have proposed stripping away investors’ ability to later sue them by putting an expiration date on the representations and warranties in the bonds and altering some of the presumptions when a borrower defaults.

Put simply, the old bonds contained legal clauses in the contracts that essentially said: “Hey, we promise that what we say are in these bonds are actually in the bonds. And if not, you can sue us.” The new bonds? “Good luck with that.”

Read the rest. (Links in original. Edited only to correct a minor spacing mistake.)